The Market for Money Transfers: Ranking of Remittance Service Providers in Latin America and the Caribbean 1

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1 The Market for Money Transfers: Ranking of Remittance Service Providers in Latin America and the Caribbean 1 Introduction This document presents a scorecard of the trends in market competition among remittance service providers (RSPs), focusing on ten United States to Latin America and Caribbean country corridors. These corridors represent a 75% share of the $65 billion market. We analyze data collected on a range of twelve indicators, examining factors that are relevant to the money transfer industry. These indicators include product offerings, country coverage, transfer costs, and payment networks. 2 The results indicate that competition continues concentrate on a few money transfers companies. Results also indicate decreasing costs, whereby most RSPs converge near average fees or foreign exchange margins. These companies no longer focus on cash-to-cash transfers as their main product offering; instead, many have diversified their services. Moreover, these remittance service providers partner with nearly 7,000 institutions operating through over 200,000 payout locations, 140,000 of which are in Mexico. The preferred payout agents are banks, whereas microfinance institutions continue to play a minimal role. Presence in rural areas is also significant. The significance of these findings points to some relevant issues. First, there is growing competition: over 70% of payment locations are now controlled by ten international companies, whereas the remaining RSPs are smaller players that operate in three countries or fewer. These leading companies are increasingly sharing the same payers in each country, offering similar pricing and penetration of rural areas. Second, average transaction costs continue to be just over 5% and have remained in that range for the past four years. Third, the number of services provided by RSPs has expanded significantly, allowing consumers to take advantage of new sending methods. Similarly, the number of payout locations and payers has also expanded. This expansion, however, is most pronounced in Mexico. This is in large part due to the new role of bank corresponding institutions in Mexico. These results are based on research of nearly 50 remittance service providers working in the US to Latin America and Caribbean corridors. Of these, data was fully collected for 37 of them. These companies hold over 90% of flows to Latin America and the Caribbean. 3 1 Prepared by Manuel Orozco, October 23, Research was conducted between April 2012 and October Data collection was conducted by Caryn Gay, Julia Yansura, Gerson Morales of the IAD. 2 One of the main units of measurement is the number of money transfer payout locations in the destination corridor. A payout location includes bank and office branches, agencies, and retail store locales. 3 For the purposes of protecting proprietary information, however, the numbers in our study were translated into ratios and percentages. These ratios and percentages serve as comparison. 1

2 1. The landscape of remittances to Latin America and the Caribbean Immigration from Latin America continues to be an economic force in several countries in the subcontinent; despite the recession, people continue to move. The flows of remittances illustrate the continuity of international migration, which in some ways has diversified to a larger number of countries. After the global economic crisis, remittance transfers recovered gradually, reaching 8% growth in This volume represents more than 15 million migrant transfers from different parts of the world, 70% of which originate from the United States. Table i Remittances to Latin America and the Caribbean, leading countries Countries Argentina (S.Am) Belize (C.Am) Bolivia (And) Brazil (S.Am) Colombia (And) ,298 Costa Rica (C.Am) Cuba D. Republic (Carb) ,239 Ecuador (And) El Salvador (C.Am) Guatemala (C.Am) ,419 Guyana (Carb) Haiti (Carb) Honduras (C.Am) Jamaica (Carb) Mexico Nicaragua (C.Am) Panama (C.Am) Paraguay (S.Am) Peru (And) Suriname (Carb) T. & Tobago (Carb) Uruguay (S.Am) Venezuela (And) LAC Number of countries Annual Growth 17% 1% 8% Source: Central Bank, IADB. These flows continue to rely on a large number of remittance service providers that now include both banking financial institutions and internet based operators. In turn, there are more than one hundred companies which are competing in order to capture this growing clientele by offering new services and even occasionally better pricing. 2

3 Intermediation in money transfers: measuring competition In order to better understand the marketplace for money transfers, key indicators were utilized. These indicators are associated with some aspects that characterize the money transfer industry in its competitive landscape, and which consumers and development policy practitioners find important. Competition in the remittance transfer market typically refers to a situation where businesses play by the rules, offer a range of products across various regions, offer market prices, have an accessible payment origin and distribution network that offers various financial services, and satisfy the needs of consumer. 4 Below are the indicators and variables utilized. Table ii Scorecard indicators Indicator Variable Description Scope Products Number of transfer products offered (C2C, C2A, A2C, A2A, and other financial services) Countries Number of countries in which it operates worldwide Cost Fee Cost to remit Exchange rate Total cost Commission of foreign exchange when sending in local currency Sum of fee and exchange rate commission Payment points Points Number of existing payment points or agent payout locations Points per country Total payment points divided by all countries where RSP operates Points as share of all points in corridor Total payment points divided by payment points in all 10 countries. Bank payers as share of all points Ratio of bank payout locations to all RSP payment points MFI payers as share of all points Ratio of MFI payout locations to all RSP payment points Competition Market share Number of transactions as a share of all transactions in a given country Rural presence Percent of all payment points that are rural Customer service Client support Extent of information provided with ease 4 Legal compliance is not covered in this scorecard. 3

4 2. Characterization of the industry s remittance sector Remittances from the US constitute 70% of total remittances to Latin America and the Caribbean. The main findings show that most companies offer more than cash-to-cash transfers and are working in more than five countries. The payment network encompasses over 200,000 payment points led by 90,000 institutions. These payment points are largely working with banking institutions as agents, where 70% of locations are in areas outside the capital or main cities. Product and Geographic Scope When looking at the type of remittance products 5 available, the majority of RSPs offer cash to cash transfers (C2C) and at least one other service. The fact that less than one-tenth of companies surveyed (4 of 37) only offer cash-to-cash transfers speaks to this diversification in product offering... A full three quarters of all companies offer transfers into bank accounts, including Internet transfers, while 15 companies offer additional financial services to consumers, such as money orders and check cashing services. These companies have understood that a small share of migrants is switching, or is prepared to switch, to other methods of remitting. On geographic scope, we also find that with the volume of money transfers growing, the majority of companies are now working in more than ten countries. Less than 40% of companies work in 10 countries or fewer. It is interesting to point out that, more than pricing, the geographic scope of companies shows some correlation with their market share; as they spread out geographically, their market share increases. Table iii RSPs geographic scope Operates in # 20 or more countries to Up to Table iv RSPs geographic scope and estimated market share for 10 corridors Payout Market RSP Distribution share Share Ria 10% 11% Moneygram 9% 12% Xoom 7% 3% Viamericas 7% 3% Dolex/Quisqueyana 6% 2% Western Union 6% 21% Uniteller 6% 3% Wells Fargo 5% 5% Vigo 5% 8% Intermex 5% 3% 5 A remittance product is a transactional service that includes accepting the transfer in cash, through an account, or providing additional financial services. 4

5 Sigue 4% 6% Order Express 4% -- Barri International 4% -- Giromex 4% Orlandi Valuta 3% 3% Bank of America SafeSend 3% -- Others 12% 19% Figure i Scatterplot distribution of payment points and market share. Transfer Costs Remittance transfer costs are measured by the transfer fee and the commission on the exchange rate. Transfer costs have typically been a topic of concern and discussion in public policy and international development circles. For example, in response to claims of lack of transparency in the industry, the United States Congress has recently passed legislation that will go into effect in February 2013 that requires full transparency, disclosure, error resolution, and cancelation rights for all financial banking and non banking institutions that perform at least 100 transfers a year.6 Transparency and disclosure in transfer costs is now a central topic that may have an effect on pricing. As of now, the average cost remitted in 2012 by the RSPs selected for this study shows a slight decline when compared to 2011 and The most important result is that prices converge more closely around the average, either in the fee or the foreign exchange commission: nearly 70% of costs are between 3.7% and 6.7% of the total transaction. Because the range of prices is less than 7%, these averages represent an important improvement in the marketplace. Table v Cost of sending money Measure Fee FX Total Average 4.1% 1.15% 5.2% Standard deviation 1.5% 1.6% 1.5% 5

6 Distribution network The data for ten countries shows a total of 90,000 locations paying in the countries researched. Not all large, established companies actually have the most locations: there are new money transfer players with a higher number of paying partners securing a bigger footprint in Latin America. On the payment side, there are different types of payment institutions working in the countries, though banks continue to be the primary payers. We find that 52% of payment locations are a combination of a money transfer operator (MTO) partnering with a banking institution. In some corridors, however, the trend is relatively different and retailers or foreign exchange houses lead by number of locations. Moreover, credit unions continue to be emerging players in the payment networks. Table vi Type of remittance service provider (%) # of Payers Bank Credit Union Forex MFI NBFI Other Post Retail Bolivia % 10.75% 1.13% 19.77% 5.36% 2.72% 0.04% 1.74% Colombia % 0.26% 3.33% 0.00% 20.49% 0.15% 0.00% 3.12% Dominican Republic % 0.70% 4.93% 0.00% 1.29% 5.70% 0.00% 3.05% Ecuador % 17.12% 30.32% 0.00% 0.25% 8.70% 0.09% 19.98% El Salvador % 4.70% 0.73% 1.22% 0.00% 5.95% 0.00% 20.49% Guatemala % 4.82% 0.72% 15.78% 0.00% 24.34% 0.00% 19.88% Haiti % 7.91% 2.61% 0.23% 0.00% 0.39% 0.00% 11.12% Honduras % 18.18% 5.40% 0.00% 4.55% 19.32% 8.95% 28.13% Jamaica % 1.62% 0.20% 0.17% 4.14% 1.08% 19.22% 18.90% Mexico % 27.29% 1.16% 1.45% 0.02% 2.16% 0.00% 11.82% Total % 3.55% 1.96% 0.57% 3.91% 2.02% 14.60% 17.68% 6

7 A scorecard for money transfers to Latin America and the Caribbean: Preliminary data Table of Contents Table 1: U.S.- LAC scorecard... 8 Table 3: Scorecard variables and metrics... 8 Table 4: RSP indicators from the U.S. to LAC Table 5: Number of RSP payment points per country (U.S. to LAC) Table 6: Number of RSP payment points as percentage of total payment points in a country (U.S. to LAC) Additional data

8 Table 1: Scorecard variables and metrics Variable Metric U.S.-LAC Scoring Source RSP Number of products Number of countries in which it operates Name of remittance service provider Ranking of products 1: Cash-to-cash or account-to-account only; 2: Cash-to-account or account-to-cash; 3: Cash and or account transfers and at least one other financial services (check cashing, money order); 4: Three or more financial services Sum of all countries served 4: More than 20 countries 3: 11 to 20 countries 2: 6 to 10 countries 1: 2 to 5 countries 0: 1 country Fee charged Average fee 4: Less than 3.000% 3: From 3.001% to 4.500% 2: From 4.501% to 5.000% 1: More than 5.001% FX charged Average Fx 4: Less than % 3: From % to % 2: From % to % 1: More than % Total cost Average fee plus Average Fx 4: Less than % 3: From % to % 2: From % to % 1: More than % Payment points in LAC Payment points / Country Payment points / Network Sum of an RSP s total payment points in LAC (ATMs excluded) Sum of an RSP s total payment points in LAC divided by the number of countries in which the RSP operates First, for each country, the sum of an RSP s total payment points in that country is divided by the number of unique payment points in that country to get a percentage presence. Then, the percentages for each country are averaged. 4: More than 20,000 3: 10-20k 2: 5-10k 1: 5 to 1k 0: Less than 1k 4: More than 2,204 3: From 538 to 2,204 2: From 139 to 537 1: Less than 139 4: Over 27% 3: From 19% to 27% 2: From 10% to 19% 1: Under 10% Pricing research Competition research Pricing research Pricing research Pricing research Competition research Competition research Competition research 8

9 Variable Metric U.S.-LAC Scoring Source Rural/Urban Ratio Bank partners as ratio of all payment points MFI partners as ratio of all payment points Client support Percent of all payment points that are rural 4: Over % 3: From % to % 2: From % to % 1: Under % Banks payment points / All payment points 4: Over 80% 3: % 2: % 1: % 0: Under 34.9% MFI payment points / all payment points 4: Over 10% 3: 5.0%-9.9% 2: 2.0%-4.99% 1: Under 1.99% 0: No partner Extent to which call centers or tellers are helpful to clients 4: Easy to reach, courteously and promptly answers client s questions, and offers additional help 3: Answers questions as requested without further exchange 2: Trouble answering questions, long periods of wait, inconsistent answers, call transferred multiple times 1: Refuses to answer questions, and/or is rude and unprofessional; Does not answer phone during business day, phone number disconnected, phone number difficult to find Competition research Competition research Competition research Mystery shopping, pricing research 9

10 Table 2: U.S.-LAC scorecard Scale 1 4. Ranking: Dimension, Cost and Distribution network, 48 points. [See Table 3 for metrics] RSP Score Product Ranking Dimension [1-4] Cost [1-4] Distribution network [1-4] Inclusiveness [1-4] Number of countries it operates in Fee FX Total cost Payment Points Points / Country Points / Network Rural Ratio Bank Ratio MFI Ratio Viamericas Wells Fargo Xoom Dolex/Quisqueyana Ria Envia MoneyGram Bancomer Transfer Services Uniteller La Nacional Sigue Western Union Order Express Giromex Citibank Alante Financial Bank of America Barri International Girosol Vigo Dinero Express Giros Latinos Jamaica National Overseas Intermex Unitransfer Multivalores (Nexxo) Dinero Seguro (USPS) RapidCash Reymesa Orlandi Valuta Fonkoze Titan CAM Cibao Delgado Travel BHD Remesas Mi Pueblo (Pujols) Client support 10

11 Table 3: RSP indicators from the U.S. to LAC RSP # Products # of countries it operates in Cost (%) Payment Network Inclusiveness Fee FX Total cost Payment Points Points/ Country Points/ Network (%) Rural ratio (%) Bank ratio (%) MFI ratio (%) Alante Financial % 83% 46% 43% Bancomer Transfer % 81% 62% 5% Services Bank of America % 81% 48% 0% (SafeSend) Barri International % 77% 83% 1% BHD Remesas % 53% 92% 0% Dominicanas Cajero Nexxo % 55% 83% 0% CAM % 59% 1% 17% Cibao % 63% 33% 0% Citibank % 32% 61% 6% Delgado Travel % 43% 10% 0% Dinero Express BBVA % 69% 100% 0% Dinero Seguro USPS % 80% 52% 0% Dolex/Quisqueyana % 77% 60% 0% Fonkoze % 98% 0% 100% Giromex % 78% 63% 0% Giros Latinos % 73% 100% 0% Girosol % 83% 25% 10% INTERMEX 2 > % 79% 66% 1% JNBS Money Transfer % 82% 43% 31% La Nacional % 73% 58% 1% MoneyGram % 76% 36% 13% Order Express % 78% 52% 0% Orlandi Valuta % 80% 29% 0% RapidCash % 83% 31% 4% Remesas Mi Pueblo % 89% 0% 0% (Pujols) Reymesa % 73% 95% 0% Ria % 77% 46% 5% Sigue % 79% 55% 5% Titan % 27% 0% 0% 11

12 RSP # # of countries it operates in Cost (%) Payment Network Inclusiveness Products Uniteller % 79% 67% 4% Unitransfer % 69% 16% 2% Viamericas % 76% 71% 4% Vigo % 76% 41% 3% Wells Fargo % 73% 76% 1% Western Union % 77% 26% 6% Xoom % 74% 59% 6% 12

13 Table 4: Number of RSP payment points per country (U.S. to LAC) RSPs Bolivia Colombia D. Republic Ecuador Guatemala Honduras Haiti Jamaica Mexico El Salvador 10 countries Alante Financial BanColombia Bancomer Transfer Services Bank of America (SafeSend) Barri International BHD Remesas Dominicanas Cajero Nexxo CAM Cibao Citibank Delgado Travel Dinero Express BBVA Dinero Seguro USPS Dolex Dolex/Quisqueyana Fonkoze Giromex Giros Latinos Girosol INTERMEX JNBS Money Transfer La Nacional MoneyGram Order Express Orlandi Valuta RapidCash Remesas Mi Pueblo (Pujols) Reymesa Ria Sigue Titan

14 RSPs Bolivia Colombia D. Republic Ecuador Guatemala Honduras Haiti Jamaica Mexico El Salvador 10 countries Uniteller Unitransfer Viamericas Vigo Wells Fargo Western Union Xoom Grand Total

15 Table 5: Number of RSP payment points as percentage of total payment points in a country (U.S. to LAC) RSPs Bolivia Colombia Dom. Rep. Ecuador El Salvador Guatemala Haiti Honduras Jamaica Mexico Grand Total Alante Financial BanColombia Bancomer Transfer Services Bank of America SafeSend Barri International BHD Remesas Dominicanas Cajero Nexxo Caribbean Air Mail (CAM) Cibao Citibank Delgado Travel Dinero Express BBVA Dinero Seguro (USPS) Dolex/Quisqueyana Fonkoze Giromex Giros Latino Girosol Intermex JNBS La Nacional Moneygram Order Express Orlandi Valuta RapidCash Remesas Mi Pueblo (Pujols) Reymesa-Wire Mexico Ria Sigue

16 RSPs Bolivia Colombia Dom. Rep. Ecuador El Salvador Guatemala Haiti Honduras Jamaica Mexico Grand Total Titan 0.07 Uniteller Unitransfer Viamericas Vigo Wells Fargo Western Union Xoom Grand Total Additional data Table A: Type of paying institution operating in selected Latin American and Caribbean countries (%) # of Payers Credit Union Bank Credit Union Forex MFI NBFI Other Post Retail Bolivia % 36.23% 10.75% 1.13% 19.77% 5.36% 2.72% 0.04% 1.74% Colombia % 68.70% 0.26% 3.33% 0.00% 20.49% 0.15% 0.00% 3.12% Dominican Republic % 56.73% 0.70% 4.93% 0.00% 1.29% 5.70% 0.00% 3.05% Ecuador % 23.53% 17.12% 30.32% 0.00% 0.25% 8.70% 0.09% 19.98% El Salvador % 66.91% 4.70% 0.73% 1.22% 0.00% 5.95% 0.00% 20.49% Guatemala % 26.27% 4.82% 0.72% 15.78% 0.00% 24.34% 0.00% 19.88% Haiti % 77.74% 7.69% 2.61% 0.23% 0.00% 0.39% 0.00% 11.12% Honduras % 13.07% 18.18% 5.40% 0.00% 4.55% 19.32% 8.95% 28.13% Jamaica % 54.17% 1.62% 0.20% 0.17% 4.14% 1.08% 19.22% 18.90% Mexico % 55.55% 25.65% 1.16% 1.45% 0.02% 2.16% 0.00% 11.82% Total % 54.37% 3.50% 1.96% 0.57% 3.91% 2.02% 14.60% 17.68% Table B: RSPs share of number of locations held in Latin America and the Caribbean RSP Payment point (%) Ria % 16

17 RSP Payment point (%) MoneyGram % Xoom % Viamericas % Dolex/Quisqueyana % Wells Fargo % Uniteller % Vigo % Western Union % Order Express % INTERMEX % Barri International % Giromex % Sigue % Orlandi Valuta % Bank of America (SafeSend) % Bancomer Transfer Services % Reymesa % RapidCash % Dinero Seguro USPS % La Nacional % 17 Others % Table C: Remittance service providers and paying institutions in Latin America and the Caribbean (%) Row Labels Bank NBFI MFI Credit Union Retail Forex Post Office Other Grand Total MTO 50.68% 3.91% 0.43% 3.40% 17.47% 1.95% 12.35% 3.33% 93.52% Bank 2.41% 0.00% 0.06% 0.10% 0.15% 0.00% 0.75% 0.01% 3.48% Post Office 0.85% 0.00% 0.04% 0.00% 0.00% 0.00% 1.50% 0.01% 2.40% Other 0.44% 0.00% 0.04% 0.06% 0.06% 0.00% 0.00% 0.00% 0.60% Grand Total 54.37% 3.91% 0.57% 3.55% 17.68% 1.96% 14.60% 3.35% % 17

18 Table D: Number of remittance service providers Bolivia Colombia Dominican Republic Ecuador El Salvador Guatemala Haiti Honduras Jamaica Mexico Table E: Cost of remitting US$200 to selected Latin American and Caribbean countries Bolivia Colombia Dominican Rep Ecuador El Salvador Guatemala Haiti Honduras Jamaica Mexico Note: cost includes fee and commission. 18

19 Conceptualizing the Marketplace A marketplace of remittance intermediation includes remittance service providers (outbound payments) and payers (inbound transfers). The key competitors in the outbound and inbound sides of the transfers are identified by the number of RSPs, payers, their institutional typology and geographic concentration inside and outside of the country s main cities. The types of RSP are classified into the following groups: money transfer operators, banks, credit unions, post offices, and other non-banking financial institutions. On the payout side, the types of institutions included are banks, microfinance institutions (including credit unions), retail stores, and, post offices. In analyzing a company s participation in the market (RSP or payer) individual payout locations were used as measure of analysis. Two measures of market share for inbound payers are used: percent of payout locations and payer market participation by RSP partner. The first measure refers to the share of the market, in terms of the number of payment points that a payer has compared to all other payers payment points. The second measure, payer s market participation by RSP partner measures the payer s locations multiplied by all the RSPs it serves and relative to all other payers across companies they serve. This latter metric measures a payer s leverage of its branches across the RSP market. Average Remittance Transactions The data presents the average amount of money transferred per transaction over time compared to the regional average for Latin America and the Caribbean. Cost of Remitting by RSP The data is based on pricing data collected over time. It includes the fee and the commission on the exchange rate. Partner Competition We use the term partner competition to refer to the partnership combination between the type of RSP and payers. Each mix shows a corridor s payment market share and offers clues about the potential for financial service options to migrants and their families. Geographic Presence The country profile displays the concentration of payers and RSPs inside and outside of the main cities in the country and is compared to the country s geographic distribution. This component also provides important clues about financial access in a country. The definition of a main city is based on traditional classifications of a metropolis, with over half a million people living in the city and over a million in the larger metropolitan area. Methodology Remittance service providers are identified from immigrant market surveys, interviews with competitors in the corridors, mystery shopping, and previous country studies. Nevertheless, the list is not exhaustive and thus it is a work in progress. The data on payout locations are used as a way to capture the extent of payout coverage, but not necessarily the market share of the intermediaries. Like any research project, our work was limited by the quality of the available data. Through our rigorous and exhaustive data collection, we discovered a number of inconsistencies regarding payers and the number, category, and location of payout points. 19

20 With regards to identifying payers, our approach depended on the amount of information that companies were willing to provide. Some RSPs have websites with mapping functions or lists of payers. In order to confirm these partnerships, we called RSPs and we called their payers. We found that new partnerships had emerged, while some of the older ones had been discontinued. For RSPs without informative websites, we relied on their customer service call centers to provide us payer information. Some were able to give us extensive and consistent data. Others were less willing to cooperate, or had less knowledgeable operators. Our scorecard data represents hundreds of phone calls to such companies in an effort to get the most accurate data possible. We found that many RSP websites were not up to date, and therefore did not reflect their full number of payment points. Whenever possible, we corrected the number of payers listed on the RSP website with the number of payers listed on payer websites, which tended to be more current, and to list a greater number of branches and locations. With regards to payer classifications, we found that some RSPs listed payer corporations, whereas others listed the businesses that physically host these corporations. We listed payers as they appeared on the RSP website. This may lead to inconsistencies among payer data. Some RSP websites listed only abbreviations for payers. Working with their customer service department, we were able to find the full names for most but not all of them. Finally, payer locations represented a challenge in our data collection. Many RSP websites listed multiple variations of town names (i.e., Oaxaca, Oaxaca de Juarez, and Oaxcaa). We filtered out misspelled and duplicated town names, since this would have inaccurately increased the number of payers for a given RSP. In addition, some RSPs double listed municipalities and provinces. Wherever possible, we filtered out provinces and listed payout points by municipality only. 20